Onerous Fees Becoming Taxing Hotelier Issues

Taxes hotels must collect are going up and up and up. Many think it’s out of control.

The controversial re-marketer tax in New York City has gotten a lot of attention, perhaps in large part because it has not been defined in detail, but tax increases across the board are getting the attention of hoteliers everywhere in the U.S.

With budget deficits at the state and local level, there have been increases in all kinds of taxes on hotels at local and state levels. The movement has led to the creation of the Council on Room Tax Solutions, a committee of the International Society of Hotel Association Executives.

“What started this group was that there was a growing challenge around the country, not just in any one state,” says Trisha Pugal, president and CEO of the Wisconsin Innkeepers Association and co-chair of the council.

“Just do a Google search on ‘room tax’ and you’ll see more stories on a daily basis. There are current and growing room tax problems and we wanted to make sure that we work on the solutions,” she adds.

There’s no question taxes are increasingly becoming a major issue. But this is nothing new.

“Every time there’s a downturn in the economy and jurisdictions have trouble with funding, they add some type of occupancy tax that goes into the general fund,” says Joseph McInerney, president of the American Hotel & Lodging Association. “It happened after 9/11, and it’s happening now.”

Twenty-five of the largest 100 business markets last year faced increased hotel occupancy state and local sales tax or added surcharges, according to data from Business Travel News.

That carried over into this year. For example, in July, Hawaii, Las Vegas and Oakland, CA, passed laws mandating higher taxes.

Vegas increased its occupancy tax from 9 to 12 percent. “There are a couple of places in downtown Las Vegas where that rate is a little more. It was a three percent point increase but they capped it at 13 percent,” said a spokesman for the convention bureau.

In some areas, tax increases have been significant. In Albany County, NY, for example, the hotel bed tax had dropped from 6 to 3 percent only to be changed back to 6 percent.

Boston officials recently proposed a two percent tax rise to bring its total to 14.45 percent in state and city taxes.

The highest hotel tax in the U.S. is in Indianapolis at 16 percent, according to the City of Boston, Office of Budget Management. That is followed by San Francisco at 15.58, then Chicago (15.4) followed by Cleveland (15.25), Philadelphia (15.2), New York (14.75), Washington (14.5) and Baltimore (13.5).

While tax increases in the past have generally gone to specific projects that could potentially benefit the hotel business, Vegas’s rate hike goes to general funds for the first two years, according to a spokesman. “After that, it goes to fund education. We don’t see any of the revenue from that new tax,” he says.

When it comes to where hoteliers can expect to see higher taxes in the future, there are obvious clubs. Why? Because some states such as Nevada are particularly reliant on hotel taxes. And these are tough economic times.

Nevada has no state income tax and almost a third of the state’s budget comes from revenues generated by the travel industry, testified Sen. Harry Reid in a recent Senate hearing.

“Revenues from hotel room taxes, car rentals and sales taxes fund most of the basic services provided by local governments scattered around the state. The recent decline in visitors to Nevada has unfortunately contributed to the worst state budget shortfall in the state’s history,” he says.

Another obvious area reliant on tourism is Hawaii. State legislators there recently also overcame a governor’s veto to raise its tax from 7.25 percent to 9.25 percent. That included a two-phase move so the tax will go up another percentage point on July 1, 2010.

The U.S. room tax at average is 12.62 percent, or about $12.69 per night for the average room rate of $94.69, according to the American Hotel & Lodging Association.

The U.S. cities with the lowest total tax burden are Honolulu, followed by Portland, Fort Lauderdale, Fort Myers and West Palm Beach, according to the National Business Travel Association.

The cities imposing the highest total taxes are Chicago, followed by Nashville, Charlotte, Seattle and Houston.

Groups such as the council are not only concerned with the higher taxes, but also about many of these taxes not going into tourism marketing, but instead being part of cities’ and counties’ economically-strapped general funds.

“There are times when a room tax is justified. When cities or counties impose a reasonable tax -- a half cent or a penny -- that will encourage tourism,” says Matt MacLaren, executive VP of the Ohio Lodging Association and head of research for the council.

Most of these taxes are used for a certain issue or promotion. But a problem for hoteliers is when the new taxes are part of a general fund that does nothing to help create new business to offset the added tax burden.

One area the council is looking into is tracking these taxes to see what impact they have.

“With the trends, we can start looking at the number of visitors to an area. If you reduce taxes, will it reduce visitors?” he asks.

Another goal is to come up with a model ordinance that can be used at all levels of government to identify components that should be addressed that would make legislation clearer and more uniform, or even to refresh current legislation.

Part of the council’s role is also to educate government officials, the media and others so everyone understands why certain taxes are used and to identify effective uses of taxes.

“We will also come up with options for advocacy to set up to protect the future of room taxes,” says Pugal. “There are so many different scenarios -- how it’s authorized, who decides where the money goes and others.”

Do the higher taxes have an influence on hotel bookings or even reduce revenues states and cities can collect? City officials say that’s a concern but they maintain there is little choice. And after all, the argument is made that the taxes are not paid by residents but by visitors. So, who really cares but hoteliers?

David Wilkening Associate EditorHotel Interactive® Editorial DivisionBio: David Wilkening is a writer specializing in travel and business-real estate writing. His work has appeared in dozens of publications and dot coms. He never met a trip he didn't like. He is a former newspaperman who worked in Chicago, Detroit, Orlando and Washington, DC, where he was a writer and editor covering a wide variety of subjects ranging from politics to feature stories. more